Netflix signs pay TV deal for Dreamworks animation

The headquarters of Netflix in Los Gatos, California, September 20, 2011.

Reuters/Robert Galbraith

(Reuters) - Online video rental company Netflix Inc said it won pay TV rights to Dreamworks Animation movies starting in 2013, the first time a major Hollywood studio has chosen an Internet streaming player over a traditional cable channel.

News of the deal drove Netflix's stock up nearly 7 percent to a high of $137.88 in early trade on Nasdaq on Monday.

Netflix did not disclose the financial terms of the deal.

However, Dreamworks CEO Jeffrey Katzenberg told The New York Times that the deal, worth $30 million per picture to Dreamworks over a number of years, was "game-changing" and represented a bet that viewers would soon no longer make distinctions between content streamed on the Internet or through cable.

The Netflix deal means Dreamworks -- the studio behind family friendly fare from "Shrek" to "Kung Fu Panda" -- is eschewing premium pay-TV operator HBO in favor of online streaming, the Times reported. HBO is a unit of Time Warner Inc.

"We are really starting to see a long-term road map of where the industry is headed," Katzenberg was cited as saying to the newspaper in an interview.

The content agreement comes days after Netflix, which has seen its share price decline sharply after a series of missteps, sealed an agreement to broadcast TV shows from Discovery Communications Inc.

Netflix needs to add more content to its streaming service to keep drawing in new customers and fend off competition from the likes of Amazon.com, Google Inc and Apple Inc.

Shares of the one-time Wall Street darling have fallen 50 percent in two months. Netflix CEO Reed Hastings has apologized for failing to explain moves adequately, from a surprise price hike in July to a separation of its DVD-mail from streaming services, and the company is trying to win customers back.

But adding customers is suddenly proving difficult, with Netflix on the receiving end of heated complaints from customers still upset over the price hike announced in July.

It cut its subscriber forecast by 1 million, saying it now expected to have 24 million subscribers at the end of the third quarter. The last time Netflix reported a subscriber decline was the second quarter of 2007, when Blockbuster was aggressively pushing a DVD rental package called Total Access.

According to the Times, Netflix was quick to pump up the Dreamworks deal.

"This is one of the few family entertainment brands that matter," Chief Content Officer Ted Sarandos was quoted as saying. "It's also a signal to people that we are in no way moving away from movies. Our programing is just reflecting more and more what people want."